Menu

0800 086 9360

10 Credit Myths Busted

Posted by Kirstie Day in Credit Score on 11 July 2018

Credit checks are an integral part of modern life: from buying a house or car to applying for a new job or passing a tenancy check, your Credit Report is remarkably versatile. But considering what an important role it can play, there are still a number of popular myths surrounding them.

All agencies hold the same information

There are four Credit Reference Agencies in the UK - namely Callcredit, Crediva, Equifax and Experian. Lenders share information with these agencies, typically via monthly updates, which is then made visible to other lenders through a process known as reciprocity. Basically, by sharing information about their own customers, lenders are able to access data on potential customers, in order to make more informed lending decisions.

Each lender has its own relationships in place, and can choose to share information with any one - or more than one - agency. At present, Crediva only reports ‘public’ information such as Electoral Roll and Court data.

As a result, a Credit Report obtained from one agency can differ to that held by another and a lender would only be able to see the information held by the agency or agencies that they search.

checkmyfile provides the UK’s only Multi-Agency credit report, including data from all four Credit Reference Agencies at differing levels of detail. You can see your full Credit History as reported to Callcredit and Equifax, and also compare the public data held by all four.

Checking your report harms your credit score

One common misconception in the UK is that checking your own Credit Report will in some way count against you and damage your Credit Score. The good news is, it doesn’t!

It’s true that whenever you or someone else searches your credit report it leaves a Search Footprint, which will be visible to you and some lenders, but the presence of these markers alone won’t harm your score. Depending on the reason for the search – for example, whether it’s an application for credit or a simple ID check, the type of search will vary. Searches can only really harm your Credit Rating if you were to make a large number of credit applications in a very short space of time, which some lenders could interpret as desperation.

When you look at your own Credit Report an audit search is created. This is only seen by yourself and the agency so you know when your report has been viewed.

The decision to lend or not is made by the agencies themselves

When you apply for credit, a lender will search your details with one or more Credit Reference Agency in order to obtain the information held on your Credit Report. Each lender then applies their own lending criteria to the data and (in the vast majority of cases) use automated credit scoring to determine whether or not to accept an application.

The decision to lend to you is entirely down to the lender alone, the Credit Reference Agencies only provide the data and have no say in the outcome of your application.

It’s worth remembering that the information held by the Credit Reference Agencies is taken from a number of different sources including lenders, courts and local councils, and do not ‘create’ any information themselves.

Having no loans or credit card in the past means a great

Many people believe that if they have never borrowed, it proves they have never needed to be in debt and so should have an excellent Credit Score.

However this is not the case. Without a credit history no which to base a decision, lenders are likely to be more reluctant to approve an application, as they don’t have any evidence of how you have maintained your credit agreements in the past – which is the best indicator of how you are likely to manage one in the future.

A non-existent or limited credit history will therefore likely result in a lower credit score.

A bad credit score will haunt you forever

If you’re in the position where you have negative information on your report (even if it’s just a single missed payment), you can rest assured that this will not remain on your credit file until the end of time.

Information reported on your report will be removed after a set time period – for closed accounts, defaulted entries and court information, this is six years. Once this period has elapsed, the entries are typically removed by the agencies within one calendar month.

Insolvency records such as bankruptcy will also remain on a Credit Report for a period of six years but will also show whether or not an individual has been ‘discharged’.

Whilst serious arrears and other negative information will almost certainly harm your ability to get credit, the impact that they have should diminish over time, especially if other credit accounts are well maintained. Once all negative information has been removed, it’s possible for your Credit Score to jump up quite considerably.

Closing accounts with late payments increases your score

Some people believe that they can increase their Credit Rating by closing down agreements that have late payments recorded against them, but this is a common misconception. Even if an account is closed, it will still be reported for a period of six years, and will be visible to any lender that searches you.

Closing accounts that you no longer use could help an application in another way, though. Lenders could be reluctant to grant credit if you hold unused or ‘dormant’ accounts with large credit limits and so by reducing the amount of available credit you have prior to applying, you could in theory make yourself less of a risk to lend to.

Being rich will result in a higher score

While you are asked about your salary information as part of a credit application, this is to reassure lenders that your monthly income in enough to cover any monthly repayments and to help set an appropriate credit limit.

Your salary information is never reported to Credit Reference Agencies and as a result does not form part of a credit scoring assessment.

‘Wealth’ in general is not reported by Credit Reference Agencies and so it’s quite possible to be cash-rich but have a poor credit rating and find it difficult to obtain credit.

Just because you’ve got a healthy bank balance, it doesn’t mean you’ll be a responsible borrower, and so lenders apply the same scoring criteria that that do to everyone.

Previous occupants at your address can affect your own rating

When you move into a new property, one of the last things you want to worry about is previous occupants having left unpaid debts registered at your address. Although it’s undoubtedly annoying and can be worrying, it’s not something to lose sleep over - someone else’s debt is exactly that: theirs and theirs alone.

Paying a default means it will be removed immediately

Unless you pay within 14 days of receiving a Default Notice, a Default will remain on your Credit Report for six years regardless of whether the full amount has been paid or not.

Although a lender will be able to see that the balance has been paid in full (and as a result you may look slightly more appealing to potential lenders), many lenders see the presence of a Default in the first place as reason enough to not offer you credit.

I can’t get credit because I’m on a Blacklist

One of the most common myths surrounding credit reporting concerns address blacklists and being declined if you live in a certain area. This is so widespread that there are all sorts of myths surrounding blacklists alone.

It is vital to remember that there is no such thing as an address blacklist – instead lenders will assess your application using the data held on your Credit Report, including payment history reported by lenders, Electoral Roll information and any court or insolvency records held by the Registry Trust and Insolvency Service. Simply put, there’s no such thing as a blacklist.

The fact of the matter is, until you check your credit report, you have no idea what may or may not be affecting your ability to get credit. If you haven’t already, you can try checkmyfile FREE for 30 days , then for just £14.99 a month afterwards, which you can cancel online at any time.

Increased consumer awareness of the importance of a good Credit Score in recent years means that most people applying for a mortgage, loan or other form of finance know that the odds of their application being successful largely depend on the information contained within their Credit Report (among other factors) and how the lender in question interprets it.

Would-be borrowers in the US have been given a potential new route when it comes to proving their creditworthiness to potential lenders, thanks to the recently announced UltraFICO score, which looks beyond the information traditionally used to assess credit applications.

When thinking about your finances and your eligibility to take out a loan, credit card or any form of borrowing, it’s tempting to boil your creditworthiness down into one single ‘make-or-break’ Credit Score. It’s not quite that simple though.

Whether you’re planning on applying for credit in the very near future, or you just want to make sure that everything is as it should be, it pays to check your Credit Report. In many cases, there will even be easy steps you can take to improve your Credit Rating.

The relationship between your credit score and your credit history seems to be cyclical: a good credit history gives you a good credit score and a good credit score means you should have easy access to credit, right? Well, in a way. But you might be surprised at how much of a role a ‘score’ really plays when it comes to borrowing.

Launched in 2012 and expected to be fully-implemented by 2020, China’s Social Credit System (SCS) could be described as at best an invasion of privacy and at worst a simple case of unabashed state-controlled oppression. Based loosely on the principles used in traditional credit scoring, this system goes several steps further to score you as a citizen and assesses how much you contribute to/hinder society.

In case you were looking for another good reason to check your credit file, we’ve got some good news for hopeless romantics: a recent survey by Discover and Match Media Group (owner of online dating sites including Match.com, Tinder and OkCupid) found that a good credit score is considered even more attractive to potential suitors than having a nice car.

Tenants have often felt hard done by, receiving no recognition or reward for keeping up with their single biggest monthly outgoing: rent. For that reason, many across the UK will welcome the news that it’s now been made easier for landlords and letting agents to report rent payments to credit reference agencies, finally contributing to their credit file.

There are plenty of reasons why you might have missed a payment on your loan or credit card, and chances are your most immediate thoughts are about making the payment to the lender and making sure everything is square.

When applying for credit, lenders will calculate your credit score using elements of your application as well as your credit files to determine if the risk of providing the credit is within acceptable levels. Lenders will all calculate your credit score differently as the criteria for lending will differ from lender to lender. This is because each element of your credit file is valued differently by each lender – where one lender may decline your application based on the presence of some negative historical information, other lenders may deem it old enough to be irrelevant to your current ability to maintain credit agreements.

Get Assistance

Information

checkmyfile is a trade mark and is a trading name of Credit Reporting Agency Limited (Registered number 3719598). Credit Reporting Agency Limited is authorised and regulated by the Financial Conduct Authority (firm reference 690175). Credit Reporting Agency Limited is a Credit Reference Agency notified with the Office of the Information Commissioner, registration number Z6636832. Our VAT number is GB 738 731 215. Credit Reporting Agency Limited is registered in England and has its registered office at Trevithick House, Trevissome Park, Truro, TR4 8UN.

Monthly fee of £14.99 applies after your free 30-day trial. You may cancel at any time without charge by Freephone, Secure Message, email or online. The free 30-day trial applies only to new customers aged 18 years or more who are living in the UK. The 30-day free trial period starts when you register. If we are unable to verify your identity online when you register, we may ask you to provide information to us which may delay access to your Credit Report.

* The data we obtain from the four Credit Reference Agencies, which we use to build your checkmyfile Credit Report, differs in depth. We obtain all available data from Callcredit, Crediva and Equifax. Experian provides us with the data they report to lenders with the exception of the credit history data that lenders provide to them, which lenders also provide to Callcredit, Equifax or to both in the vast majority of cases; and also with the exception of Cifas fraud data, which is supplied to Experian in the same format to Callcredit and Equifax, and which we also show on your checkmyfile Credit Report. We present all of this data in the same format so you can more easily compare the differences between agencies, spot errors and, by using the common yardstick of your checkmyfile Credit Scores, you can also see how your creditworthiness differs, depending on which Credit Reference Agency is searched by a prospective lender.